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Thames Water plans record investment to turnaround performance for customers, communities and the environment

Monday 2nd October 2023 12:00

A picture of two engineers using a tablet at a Thames Water site

Thames Water plans record investment to turnaround performance

Thames Water Utilities Finance plc announces that Thames Water has submitted its business plan for 2025-30 to Ofwat as part of Price Review 2024 (PR24) following consultations with nearly 20,000 customers, the communities in which it operates and its wider stakeholders.

Cathryn Ross and Alastair Cochran, Interim Co-CEOs of Thames Water said: ";Our ambitious plan delivers what our customers have told us are their top priorities. We plan £18.7 billion total expenditure - including a record £4.7bn investment in our network and other assets - to maintain safe high quality drinking water, to ensure security of water supplies across London and the Thames Valley now and in the future, and to deliver further environmental improvements. Our plan prioritises storm overflows, bathing water status and reducing leaks and pollutions. In parallel, we will do more than ever to support customers by introducing an improved social tariff for those who struggle to pay their bills."

Our plan will deliver a reliable, secure and affordable service for customers by:

  • Preserving a reliable supply of water, with minimal disruption
  • Replacing 500km of ageing water mains
  • Maintaining safe, high-quality drinking water by replacing 54,000 lead pipes
  • Upgrading 150km of sewers to lower the risk of sewer collapses
  • Reducing the number of times sewage floods into properties by 17% as well as all other external sewer floods by 14%
  • Providing over 530,000 households meaningful support with their water bills
  • Resolving more billing and operational issues within 24 hours by improving digital infrastructure, allowing customers to resolve more issues online

Our plan will create more jobs and enhance biodiversity for communities by:

  • Hiring more local people by increasing the number of T-levels, summer internships and apprenticeships
  • Investing £12 million in improving land to boost biodiversity

Our plan will further materially improve Thames Water’s environmental footprint by:

  • Reducing storm overflows by 28%
  • Reducing blockages caused by sewer misuse by 15%
  • Reducing the total number of pollution incidents by 30%
  • Opening the Thames Tideway Tunnel, London’s “super sewer”, the third phase of improvements that will increase the health of the river by reducing combined sewer overflows by c.95
  • Investing to improve the bathing water quality at Wolvercote Mill Stream
  • Spending over £2.5bn to deliver a 22% reduction in leakage
  • Reducing water use per person by 5.5%
  • Continuing our industry leading roll out of 1 million smart meters to make it easier for customers to save money and find leaks
  • Ensuring water security for this and future generations, including consulting and planning for a reservoir near Abingdon
  • Replacing assets that come to the end of their life with carbon neutral alternatives

Our plan is financeable by:

  • Delivering an £18.7 billion totex programme to maintain safe high quality drinking water, ensure security of water supplies and deliver further environmental improvements
  • Offering sufficient returns for further shareholder funding of £3.25 billion in AMP7 and AMP8, in addition to £0.5 billion received in March 2023
  • Proposing a Weighted Average Cost of Capital of 4.25% (real)
  • Delivering c.30% real RCV growth over AMP8
  • Targeting BBB+/Baa1 investment grade credit ratios
  • Reducing average gearing to 71% and strengthening post maintenance interest cover ratio to 2.1x
  • Assuming no dividends are paid to our external shareholders during AMP8

Interim Co-CEO’s Statement

We and our shareholders are fully committed to deliver a step change in investment and performance. That is why, between 2025 and 2030, our plan proposes to invest a record £4.7bn in our network and other assets, which will improve water security for our customers in London and the Thames Valley and deliver environmental improvements.  This investment is critical to building greater resilience in the face of an ageing asset base, climate change and population growth.  In doing so, we will more than double current levels of investment.

For over three decades Thames Water’s bills have been below the industry average, despite us having the oldest network. And they are no higher today than a decade ago. To deliver water security and environmental improvements, our bills will need to rise but also be affordable.

We are all too aware that we are asking customers to pay more at a time when many are already facing financial pressure from household bills rising across the board, but it is now vital to fund future investment. We will therefore do more than ever to support customers who struggle to pay their bills and our plan proposes to provide over 530,000 households with meaningful support with their water bills.

We also have choices about exactly how we recover the costs of providing life’s essential service over the next period.  If we were to adopt a ‘rise and flat’ bill profile during 2025-2030, the average monthly bill will rise by £14.55.  Alternatively, we could introduce lower bill increases at the start of the next price control period, but this would mean steeper rises over time.  We are looking forward to discussing the right bill profile for our customers further in the coming months.

We are committed to doing our best to ensure that customers do not pay more than they need to for this vital investment by becoming a more agile, efficient, and responsive company. We will also make sure we deliver performance improvements in the areas that matter most to our customers.  Our refocused, prioritised three-year turnaround plan will build on what we have achieved over the last two years and take us into the next period.  It will deliver a turnaround in performance and a more resilient Thames Water.

Our shareholders are stepping up to support this much needed investment, underscoring their commitment to delivering Thames’ turnaround and life’s essential service for the benefit of our customers, communities and the environment. Shareholders have already invested £500 million of new funds in 2023.  In addition, they have agreed to provide a further £750 million in new equity funding across AMP7. This further funding is subject to satisfaction of certain conditions, including the preparation of a business plan that underpins a more focused turnaround that delivers targeted performance improvements for customers, the environment and other stakeholders over the next three years and is supported by appropriate regulatory arrangements. Our shareholders have also acknowledged the need for additional equity investments indicatively in the region of £2.5 billion in AMP8. In aggregate, this would equate to total equity investment of £3.75 billion, the largest equity support package ever proposed in the UK water sector.

We will be hosting ‘Your water, your say’ meetings for customers and other stakeholders in the coming months to gather feedback on our plan. However, we simply cannot deliver everything that our customers and stakeholders would like to see between now and 2030. Our plan reflects the difficult choices we have had to make. We take delivering our obligations very seriously. We also need to deliver performance improvements in those areas that matter most to our customers and stakeholders, whilst continuing to deliver our turnaround and ensuring our infrastructure is more resilient for the future.

We have had constructive discussions prior to submission with our regulators on the scope of both our plan and proposed regulatory arrangements, which include the scale of log-up to CPIH-real RCV for totex overspend in AMP7, allowed totex relative to actual spending in AMP8, and the maximum level of penalties that we can incur under Ofwat’s Outcome Delivery Incentive regime. We are looking forward to continuing these discussions - which could influence the scope of our plan, the bill impact and bill profile - and securing a price control that, in the round, allows us to both deliver record levels of investment for the benefit of the customers, communities and environment we serve, and offer investors an opportunity to earn the returns required to finance it.

Read a summary of the plan. Investors should read this summary in conjunction with the full plan to be published by Thames Water.